From 1 July 2027, the current 50% capital gains tax discount will be replaced with a new inflation-based indexation model. This change may apply to capital gains from assets such as property and shares. In addition, a minimum tax rate of 30% will apply to real capital gains that accrue from 1 July 2027. While the detailed legislative design is still to be released, the changes are expected to have a significant impact on how investors assess long-term after-tax returns.
Under the current rules, if an investor sells an asset they have owned for more than 12 months, only 50% of the capital gain is generally taxed. For example, a $100,000 capital gain is currently treated as a $50,000 taxable gain, which is then taxed at the individual’s marginal tax rate. Under the new system, the 50% discount will be replaced with inflation indexation, meaning the original purchase price of the asset may be adjusted to reflect inflation over time, with tax then calculated on the real gain.
The changes do not apply immediately. Gains accrued before 1 July 2027 are generally expected to continue accessing the current 50% CGT discount, while gains from 1 July 2027 onward will fall under the new system. For example, if a residential property was purchased in 2020 for $500,000, valued at $850,000 on 1 July 2027, and later sold in 2030 for $1 million, the gain may effectively be split into two periods: the pre-1 July 2027 gain may continue to access the current discount rules, while the later gain would be assessed under the new indexation and minimum tax framework.
Investors may need to obtain a valuation of affected assets as at 1 July 2027, either through a formal valuation or an ATO-approved method. This valuation may be requested after 1 July 2027, but it would need to reflect the asset’s value at that date. Importantly, some concessions remain unchanged, including the main residence exemption, small business CGT concessions and the existing affordable housing CGT concession. Eligible new residential properties may also continue to receive CGT concessions, with investors expected to be able to choose between the current 50% CGT discount and the new inflation indexation method.
For property investors, these changes may affect decisions about when to buy, when to sell and how long to hold an investment property. They may also increase the focus on new-build investment strategies and after-tax return modelling. Clients should seek professional tax, financial and lending advice before making decisions, particularly where they own existing investments, are considering selling, or are planning to purchase an investment property before the new rules commence.
Important disclosure: This article contains general information only and has been prepared without taking into account your individual objectives, financial situation or needs. It should not be relied upon as personal financial, tax, legal or credit advice. Before making any decision in relation to property investment, SMSF borrowing, superannuation or taxation matters, you should consider whether the information is appropriate for your circumstances and seek advice from a qualified financial adviser, accountant, tax adviser, solicitor and/or licensed credit adviser. Legislative details, commencement dates and lender policies may change, and you should confirm the current position before acting.